Which payment model is primarily used for inpatient hospital services under Medicare?

The Diagnosis-Related Groups (DRG) payment model is primarily used for inpatient hospital services under Medicare because it is specifically designed to categorize hospitalizations into groups based on diagnosis and the services received. Each DRG has a fixed payment amount associated with it, which is intended to encourage efficiency and cost control in hospital care. The model facilitates standardized payments based on the overall severity of illnesses, co-morbidities, and resource use, allowing Medicare to remain predictable in its expenditures while incentivizing hospitals to provide effective care within that budget.

Medicare's use of DRGs also aims to promote consistency in care by adjusting payments for hospitals that treat patients with varying complexities. This method contrasts with other payment systems like per diem rates, which pay hospitals a fixed amount for each day a patient is hospitalized, or capitation, which pays a set fee for all care services regardless of the number of provided services. While ambulatory payment classifications apply to outpatient services, they are not relevant to inpatient care, thereby highlighting DRG's pivotal role in reimbursement for inpatient hospital services.